On January 18, Alaska House Rep. Andy Josephson introduced Bill 229. The bill is designed to prevent the Higher Education Investment Fund from running out of money at the end of the government fiscal year. HEIF pays multiple scholarships and not protecting it would create uncertainty about the long-term stability of the programs.
The HEIF was created in 2012 by the State. In a meeting before the State House Finance Committee on March 10, Josephson said the fund was created when the state ran out of money. Initially, it was funded with $400 million and there were two scholarships: the merit-based Alaska Performance Scholarship and the need-based Alaska Education Grant.
Presenting to the same committee, Josephson staff member Elise Sorum-Birk described the history of the fund. In 2015, funds were approved to pay a scholarship for WWAMI students. Money from the fund was also used to help pay for state libraries, museums, and the state pension system.
The issues surrounding the stability of HEIF started in 2019. Two different issues are related to it. The first is a question of whether or not the account is considered part of the state’s general fund. The second problem stems from a failure of the state legislature to vote for what is called a “reverse sweep” at the end of the state’s fiscal year.
With regard to the first question, it is important to distinguish between the constitutional budget reserve and the general state fund. As described in a KTOO article, The CBR can be considered the state’s piggy bank. The general fund is made up of various accounts which, in addition to others, remunerate the expenses of the State.
Alaska State Attorney General Treg Taylor said in a statement from the governor’s office that the Alaska constitution requires that any money remaining in the general fund accounts be returned to the CBR at the end of the fiscal year.
Think of it like a car loan: you get a $10,000 loan, but ultimately only need $7,000 for the car you buy. The remaining $3,000 would go back to the bank. In this case, the bank is the CBR and the loan is an account in the general fund. This process is called a “sweep” and takes place on the last day of the state’s fiscal year, June 30.
According to Josephson, only $20-30 million is made annually from HEIF. This means that there is always money left over. But, until 2019, it was not considered part of the general fund, so the money was not funneled back into the CBR at the end of the year.
Reported by ADN in 2019, Governor Mike Dunleavy’s administration reassessed what should and should not be considered a general fund account. The administration determined that the HEIF was indeed part of the general fund.
As mentioned above, there is a second aspect to the problem facing HEIF. While the account has technically become sweepable by the Dunleavy administration, the state Legislature normally holds a vote at 12:01 a.m. on July 1, to do a “reverse sweep.” Reverse scanning sends money that has been swept into the CBR to accounts in the general fund. This process was exposed in an article by James Brook in DNA.
This is done because there are many programs that need constant funding to operate. Using the car loan analogy, imagine you are keeping the remaining $3,000 to help pay for gas and car insurance. Let’s say the bank asked for that extra money back and you returned it. Then, the very next day, you got a new loan from the bank for $3,000. This is essentially what happens at midnight on July 1st.
While this back and forth may seem silly and a simple accounting fallacy, the reason for it has to do with the original intent of CBR. The fund was created, according to the Alaska Department of Revenue websiteto “ensure budgetary stability”, and the State is obliged to repay any money taken.
To draw funds from the CBR, as occurs in the reverse sweep, Alaska’s constitution requires the approval of three-fourths of the legislatures. In 2019, Republican lawmakers blocked voting and some accounts, in addition to HEIF, were drained of money. Later that year, they reached an agreement to pass a reverse sweep and the funds were returned to HEIF.
In 2021, the legislature again failed to vote on the reverse sweep, but this time it was unable to find a solution, according to Josephson. This led the HEIF to transfer all of its funds to the CBR.
As reported by Alaska Public MediaEarlier this year, four University of Alaska students filed a lawsuit against the Dunleavy administration, challenging the transfer of funds to CBR. On February 17, Judge Adolph Zeman ruled against the students saying the sweep’s actions were in accordance with state law.
Even though the money behind the scholarships was cut, the scholarships themselves were paid for in the 2022 school year by the state, according to Josephson. Too, as shown on the governor’s websitethe budget proposal provides funding for them in 2023.
This method of paying out the three scholarships would involve putting them to an annual vote by the legislature, meaning there is less guarantee for students that the money will be there for the long term.
As Josephson said at a committee meeting on February 7students faced with this uncertainty would ask “why am I staying in Alaska where every year I have to hold my breath and wonder: will there be new funding from the general fund?
At the March 10 finance committee meeting, Chad Hutchison, director of state relations at the University of Alaska, said that in candid conversations with the University of Washington, the medical school said that the instability of WWAMI’s funding could lead to Alaska’s exclusion from the program. .
HB 229 does several things to help protect the account from being scanned each year. They all involve making it clear that the HEIF is a separate fund and not part of the general fund. This includes calling the HEIF a segregated fund and labeling it a trust. Also, it transfers the fund to the Alaska Student Loan Corporation as a subsidiary.
Josephson described them as “layers of armour” to prevent the fund from being part of the annual sweep. According to him, these actions will be read by the courts of the State of Alaska as clear indicators that the HEIF is separate from the general fund and therefore cannot be brushed aside.
There are other bills making their way through the state Legislature that seek to protect HEIF, although if any of them pass, it will take yet another vote by the Legislature to recapitalize the account. If using new funding, it would require a simple majority vote plus governor approval according to Josephson. Bringing back funds from the CBR would require the approval of a supermajority of three-quarters of the legislature.